Sunset of all special Swiss corporate tax regimes
Under the reform, all special Swiss corporate tax regimes such as the mixed company, the holding company, the domiciliary company, the principal company (governed by Federal Circular Letter No. 8), and the finance branch regime, are likely scheduled to sunset from January 1 2020. These regimes will be replaced with measures that are both internationally accepted and that ensure Switzerland will remain attractive for multinational companies.
Transitional rules for sunsetting regimes
The sunset of these special tax regimes is subject to transitional rules. These rules should enable companies benefitting from such regimes to maintain their existing level of taxation by way of a special release of hidden reserves for another five years after the sunset of the regimes from January 1 2020, depending on their specific facts and circumstances.
Main replacement measures for corporate taxpayers
- Reduction of general tax rates: at the discretion of the individual cantons, where the majority of cantons will be in the 13–14% tax rate range (effectively combined federal/cantonal/communal tax rate, ETR) with some cantons with an ETR as low as 12%, such as Zug, Schwyz and Lucerne;
- Introduction of a patent box: following the so-called modified nexus approach by the OECD on a cantonal level, with a tax relief for qualifying incomes of up to 90%;
- Introduction of a R&D super-deduction: at the cantonal level, up to a maximum of 150% of the effective qualifying expenses;
- Step-up on migration of a company, or of activities and functions to Switzerland: A step-up would be allowed for direct federal and cantonal/communal tax purposes (including on self-created goodwill) for companies or additional activities and functions migrating to Switzerland;
- Reduction of the cantonal/communal annual capital tax: in relation to participations, patented intellectual property, and intercompany loans at the discretion of the individual cantons; and
- Cantons with a 'high' cantonal tax rate may introduce a notional interest deduction (NID) on a cantonal level: This may only benefit the canton of Zurich and potentially very few additional selective cantons with high enough tax rates.
The bill is well supported by almost all of the relevant stakeholders ranging from business associations to unions and the whole political party spectrum, including the major left wing parties, who were formerly critical of the reform. We therefore currently deem the odds to be more likely than not that the bill will be confirmed in the public vote. However, the decision will be with the Swiss voter.